The Customs, Excise and Service Tax Appellate Tribunal has delivered a definitive ruling that the declared transaction value of imported goods cannot stand if any portion of the consideration is paid through unauthorized channels such as hawala. This judgment reinforces that statutory valuation principles demand full disclosure of all payments, and deliberate concealment triggers mandatory legal consequences under the Customs Act, 1962.
Background & Facts
The Dispute
The appellant, M/s. Multitek Engineers, imported rubber and PVC conveyor belts from overseas suppliers in China, Korea, Singapore, and Italy. The Directorate of Revenue Intelligence (DRI) investigated allegations that the company systematically under-invoiced imports by approximately 25%, declaring only 75% of the actual transaction value in Bills of Entry while remitting the balance through unregulated foreign exchange channels.
Procedural History
- 2012: DRI conducted searches at appellant’s premises, seizing documents and recording statements under Section 108 of the Customs Act.
- 2016: Adjudicating Authority issued Show Cause Notice proposing rejection of declared value, re-determination of assessable value, demand of differential duty, confiscation under Section 111(m), and penalty under Section 114A.
- 2016: Commissioner of Customs (Appeals) upheld the Adjudicating Authority’s order, including inclusion of interest in penalty quantification.
- 2016: Appeal filed before the Customs Tribunal.
Relief Sought
The appellant sought quashing of the penalty, confiscation, and interest components, arguing that the Department relied solely on retracted statements and uncorroborated Enforcement Directorate (ED) proceedings without documentary evidence linking hawala payments to specific imports.
The Legal Issue
The central question was whether the declared transaction value under Section 14 of the Customs Act, 1962 can be rejected when part of the consideration is paid through unauthorized channels, and whether such rejection justifies re-determination of value under Rule 9 of the Customs Valuation Rules, 2007, along with imposition of penalty under Section 114A and invocation of extended limitation under Section 28(4).
Arguments Presented
For the Appellant
The appellant contended that:
- The Department failed to produce contemporaneous import data or comparable values to substantiate undervaluation.
- Statements recorded under Section 108 were either retracted or obtained under duress.
- Reliance on ED proceedings under FEMA was impermissible in customs proceedings.
- No bill-of-entry-wise nexus was established between hawala remittances and specific imports.
- The 25% flat adjustment was arbitrary and lacked legal basis.
- Section 114A penalty cannot be imposed without prior determination of duty under Section 28(8), and interest cannot be included in penalty quantification.
For the Respondent
The Revenue argued that:
- The appellant repeatedly admitted in Section 108 statements to under-invoicing and remitting differential amounts through hawala.
- These admissions were corroborated by statements of foreign exchange dealers and ED seizure records.
- Once it is established that part of the consideration was paid outside banking channels, the declared value ceases to be the "price actually paid or payable" under Section 14.
- The residual method under Rule 9 is not discretionary but mandatory when transaction value is vitiated.
- Deliberate suppression of material facts justifies invocation of Section 28(4) and mandatory penalty under Section 114A.
The Court's Analysis
The Tribunal conducted a rigorous analysis of statutory provisions, evidentiary standards, and judicial precedents. It emphasized that Section 14 mandates adoption of the "price actually paid or payable" as the transaction value. The Court held that this concept is not merely formalistic but substantive: any undisclosed payment, regardless of its nature, forms part of the true consideration.
"The appellant has, in clear and unequivocal terms, admitted that only about 75% of the actual value was reflected in the invoices and that the balance was remitted through non-banking channels. These admissions are not isolated or stray statements; they are repeated, consistent, and corroborated by statements of Shri Sanjeev Yadav and Shri Ratan Das."
The Tribunal rejected the appellant’s argument that ED proceedings under FEMA were inadmissible. Citing L.R. Melwani, K.I. Pavunny, and Union of India v. Shah Alam, it affirmed that evidence lawfully collected by one statutory authority may be relied upon by another if relevant and independently examined. The ED records were not used in isolation but as corroborative material alongside Section 108 statements and seized documents.
On valuation methodology, the Tribunal clarified that while the Customs Valuation Rules prescribe a hierarchy, this sequence is not mechanical. When transaction value is vitiated by deliberate concealment, recourse to the residual method under Rule 9 becomes a statutory necessity, not a discretionary option.
Regarding Section 28(4), the Court held that suppression does not require secrecy of import but non-disclosure of material facts affecting assessment. Section 46(4) imposes a statutory duty to declare full consideration. The appellant’s conduct - declaring partial value while routing the rest through hawala - constituted wilful misstatement.
On penalty under Section 114A, the Tribunal held that once wilful suppression is established, penalty is mandatory and not discretionary. The Court relied on Cosmic Dye Chemical and Padmini Products to affirm that bona fide belief is negated by suppression of material facts. Interest, being a statutory consequence of under-levied duty, must be included in penalty quantification.
The Verdict
The appellant’s appeal was dismissed. The Tribunal upheld the rejection of declared transaction value, re-determination of assessable value under Rule 9, invocation of extended limitation under Section 28(4), demand of differential duty with interest, and mandatory penalty under Section 114A. Confiscation under Section 111(m) was affirmed, though no redemption fine was imposed as goods were no longer available.
What This Means For Similar Cases
Transaction Value Must Reflect All Consideration
- Practitioners must advise importers that any payment - whether via bank, hawala, or barter - constitutes part of the "price actually paid or payable" under Section 14.
- Failure to disclose any component of consideration, even if labeled as "commission" or "after-sales service," renders the declared value legally invalid.
ED Evidence Is Admissible in Customs Proceedings
- Customs authorities may rely on ED/FEMA records as corroborative evidence, provided they are relevant and independently assessed.
- Practitioners should no longer argue that ED proceedings are irrelevant in customs cases; the Tribunal has closed this loophole.
Penalty Under Section 114A Is Mandatory on Suppression
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Section 114A penalty is not discretionary once wilful suppression is proven.
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Arguments based on "bona fide belief" or "interpretational dispute" will fail if material facts were deliberately concealed.
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Interest must be included in penalty quantification - this is now settled law.
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Practitioners must now treat undervaluation cases as criminal-grade violations, not mere administrative errors.
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Defense strategies must shift from challenging valuation methodology to proving absence of intent - a near-impossible burden after this ruling.
